Life/risk advisers are busy but less risk is being written

Specialist life/risk advisers have rarely been busier but less life insurance business is being written for the simple reason that many older risk advisers are leaving the industry and fewer generalist advisers see the economic benefit in writing risk business.

That is the bottom line for the Australian life insurance industry at the start of 2021 which stands in stark contrast to the situation in 2008/09 when amid the confusion and volatility of the Global Financial Crisis generalist advisers turned to advising on risk because it represented a solid revenue stream.

Around 18 months out from the Australian Securities and Investments Commission (ASIC) producing its review of the Life Insurance Framework (LIF), it is now clear that less business is being written simply because there are fewer advisers.

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And for some generalist advisers the economic arithmetic of writing risk simply does not add up because of the limitations imposed by the overall regulatory requirements and the commission caps imposed by the LIF.

The story has been underlined by the latest data from specialist life/risk actuarial fir, Plan For Life which revealed inflows into the Lump Sum sub-market grew by just 0.3% over the past year with mixed company-level results.

Among the market leaders, ClearView (4.6%), Zurich (3.3%), TAL (2.1%) and MLC (1.3%) experienced positive percentage increases in their Inflows with the remaining insurers reporting minimal or negative growth.

Synchron director, Don Trapnell confirmed that specialist life/risk advisers working within the licensee were busy but that, overall, less business was being written.

Bombora Advice principal, Wayne Handley told a similar story stating that specialist life/risk advisers were busy and in many instances their workload was increasing as non-specialists advice firms referred clients to specialist risk advisers.

“It’s a two-speed economy for us,” Handley said. “People who have the specialist capabilities are busy because of the referral work coming from those who don’t.”

“I’ve never seen opportunities more robust than they are at the moment but we’re losing guys because of the Financial Adviser Standards and Ethics Authority (FASEA) and regulatory requirements,” he said.

Trapnell, who has been a long-standing advocate of specialist life/risk advisers being subject to different education requirements to general advisers, said the real test would come when the time ran out for life/risk advisers to sit the FASEA exam.

“Some of the old and bold are simply not going to do it [the exam],” he said.

This was echoed by Association of Financial Advisers (AFA) general manager, policy and professionalism, Phil Anderson, said there was a real question mark over how many specialist life/risk advisers would do the exam or leave before time expired to do so.

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I suspect another contributor to both adviser activity and adviser abandonment of the sector, is the massive increases in premiums from insurers in recent times. (eg BT is now slugging some level premium clients with annual increases of up to 72%). For holistic advisers all these egregious premium increases lead to an erosion of client trust and have a negative impact on the broader relationship.

Given that the insurance sector seems to be on a path of self destruction through manipulating churn, reducing commissions, increasing clawback periods, failing to manage mental health claim blowouts, and now all these egregious premium increases, many holistic advisers who easily meet the FASEA and licensing requirements for insurance advice are just giving up on insurance because it's all too hard.

More than two-thirds of my clients are "risk only" and I have never been busier. Arranging reductions in cover, tinkering with waiting periods, reviewing value of add on benefits, all in response to trying to keep my clients with cover that they can afford, given the momentous increase in premium rates across the industry. What once took a short time to arrange, now takes an eternity due to compliance hurdles from my Licensee and ASIC.

So yes, I have never been busier. Unfortunately I no longer have time to protect new clients, as I put the interests of my long-term existing clients first.

Dar Mike,

On the following statistic:

"Among the market leaders, ClearView (4.6%), Zurich (3.3%), TAL (2.1%) and MLC (1.3%) experienced positive percentage increases in their Inflows with the remaining insurers reporting minimal or negative growth."

Are you able to confirm if this includes premium inflows created by large premium increases on existing insurance policies? What would the net flows have looked like if the insurers had not increased premiums by 20% to 40% over the previous years?

This is the very problem the LIF has created. Company inflows have in reality been decreasing by 20-40% each year since the LIF was introduced. The insurers have been propping this up with enormous premium hikes over the same period.
Its impossible for this to continue.

Clearly there are structural issues affecting the industry, the key one's being life insurance premium increase and the challenge of the FASEA standards which industry analysis shows impacted the risk-writer demographic as their existing education qualifications is on balance, less the industry average. In both cases, government policy is the cause. Then you have almost meaningless "consultation" by ASIC over access to affordable advice and motherhood statements by the Minister about the same. The Government know exactly the root causes of the current problems, but they lack the courage to fix it as they seem beholden to the "activists", who blame the banks and all financial advisers for the ills of the world.

I am a so-called 'holistic adviser', mostly advising younger accumulators. I was very active in the risk space due to client demographics, but I have completely lost motivation for writing risk. The compliance requirements have reached peak insanity and I have zero in confidence in commissions going forward. In fact I don't think commissions are even legal based on my interpretation of the FASEA Code. I will write risk if I have to, but only if the client pays a large upfront fee (typically around $3K to $6K). Guess what? Most accumulator clients don't have that kind of cash sitting around. Who would have guessed that? With ASIC and APRA bullying us re the Sole Purpose Test, I don't feel confident having the fees deducted from super, even though dentists and plastic surgeons seem to have no trouble giving unlicensed advice to their patients and arranging withdrawals. So I say to ASIC - congratulations. You have successfully destroyed my life insurance book and all the young people who would have otherwise come to me for good advice, the vast majority are now on their own. This is clearly what you wanted because it is an obvious outcome of actions taken over the last two decades. But there is good news - there are loads of Boomers looking for advice with large amounts of money and no need for insurance. I have pivoted. There is less compliance, more income, and less uncertainty. But I can't help feeling sorry for those young Australians who are mortgaged to the hilt, who are now left with no access to financial advice. I don't think I will ever comprehend the bitter, ignorant and twisted minds that caused this to happen.
PS. I will continue to support my existing clients, but for every new policy I write, I am significantly reducing benefits or cancelling 8 policies. Sayonara life insurance industry!

You comments are spot on....Your interpretation of FASEA and Risk insurance is interesting. Recently I went through an ASIC look back program from my time with a licensee in 2009...eleven $%$# years ago.... The license said they're applying 2016 standards to 2009. What's going to happen in 2026 when ASIC under a Choice Magazine and Union sponsored Government applies those now clarified standards to 2020 only some seven years ago.

It's possible we've reached the stage where it's in the consumers best interest to just buy cover and get advice via a TV add. Once upon a time people would go to an Adviser for "advice"...The insurance adviser after applying his skills and discussion with the client would recommend a cover, via a SOA. 2021 and you count the variables in offering full service holistic, even scoped insurance advice. Super v non super, waiting periods, benefit, CPI index, Life, IP, Trauma,TPD etc etc's not possible to deliver compliant advice when ASIC is so adversarial. Restrictive compliance obligations has killed insurance.

Great job ASIC, FARSEA, Treasury, Hayne RC and Pollies.
You must be soooo proud of the complete train wreck you Canberra bubble bureaucratic morons have implemented.
Beyond help or sanity the lot of you.

You certainly hit the nail on the head Young Adviser. I'm one of the older brigade with nearly 30 years in the industry which started off as mainly life insurance. I have always seen it as 1 of the 3 pillars of good financial advice. However, like you, we avoid it like the plague now. We will cover it as part of a holistic plan (if we have to), but no chance my practice of 2 CFPs will do stand alone insurance advice, for the exact reasons you mentioned.

Come the end of 2021, it will be interesting to see how many specialist risk advisers are left and how many previously holistic planners will offer insurance advice. On both accounts I'm predicting not many, which is very sad for the Australian population.

I too am one of the “old” brigade starting in 1978 as a collector agent ( not many of us left) I can honestly say I have seen many ups and downs in the industry over 40 years plus but never such an orchestrated mess like ASIC and the repeated political ignorance of what is currently happening
The last pole I saw on people sitting or not sitting the FASEA exam was hovering about 40% who were not going to never intended to and still had not made up there mind! If that does not set off alarm bells for the industry what does If the is the pre curser to the 1st January 2026 when I expect a further mass exodus god help the insurance advice industry
I see that we are not the only ones spending enormous amounts of time trying to keep clients with at least some life cover and IP thanks to the outrageous premium increases over the past two years. Along with this if you do find a company that you can get the same benefits at a cheaper cost you are scared it will be viewed as “ churning”
Dear Government !! Take notice do something now that constructive or wear the consequences of a well and truly underinsured Australia and a health system ready to collapse

Its not just about fewer adviser numbers. We have stopped writing risk new business because its unprofitable to do so. At only 66% commission and a 2 year clawback if you take a normal lapse rate (out of your control), advertising costs, time and extra compliance we have worked out that you are actually losing money writing new business.
Most advisers I suspect have realised like us that its more profitable to sit on trail commission and look after existing customers than to spend time and money writing new business.
And yes we are busier because all of the insurers are increasing existing customers premiums to make up for lost profits so lots more reductions, lapses and restructuring.
The LIF has failed on every level.

Yeah I am flat out. Not writing any new business but flat out responding to existing clients who have been gouged by their current insurer with huge premium increases. All conversations revolve around what can be done to keep the cover. So in simple terms its a cycle, Insurer increases premiums greatly, client comes to me to reduce cover, insurers don't collect any extra premiums so they increase cover again, client reduces cover. Its never ending.

Hopefully all these financial advisers leaving the industry move into politics!

So what you're saying is you are earning your trail commission?

We're paying in "time".

Unfortunately, we are spending more time providing advice which wouldn't be a problem if more new insurance was being written. If we didn't have these negative effects of the LIF regime, then all of our clients would be able to afford the cover they need.

So, I guess... yes, earning our trail, but not able to help new clients, nor the industry.

Billy Bob, you have shown that you are ignorant of the basics of insurance. I don't charge fees for insurance advice, implementation, updating addresses, bank account details, certificates of currency, updating beneficiaries and more. All my clients know that I receive commissions to cover the costs of those transactions. That to me is part of the pooling of risk. Those that need it, get it. I especially do not charge fees at claim time. That is the biggest part of my Client Value Proposition. I have many long term income protection claimants, most of which I no longer earn any commissions for, as they are not paying premiums, as these are being waived. Those not on claim, understand this. I treat all my clients equally and fairly and when they need my time, it is there for them. That is regardless of whether the client is 83 years old with a whole of life policy that started in 1957 that I receive $1.79 a year for or someone with a portfolio of products that I receive $3000 for. In fact, it is almost socialism which your left wing brain should be embracing.

Good on you old fella. The vast majority of advisers operate the same way. Honesty and good will. Positive client experiences lead to referrals and that is the foundation of most advice practices. Unfortunately, the spineless lawyer types who have infiltrated ASIC, treasury, FASEA, APRA, the RC and government cannot understand this.

Old fella, what you have described is actually as advertised, earning your trail commission, I do not charge a fee for insurance, nor do I charge for claims for existing clients. I am far from left leaning. You can’t complain that you’re now having to do something to earn your trail. I spent 2 hours with a client doing just as you describe for an annual commission of $400. Didn’t cover my costs but it was the right thing to do and you don’t see me complaining

Billy bob, I don't charge to handle a client's claim and at present I have over twenty active income protection claims in progress.. I believe that I have always earned my trail and I take umbrage with anyone who says that I don't. I offer and provide pro-active reviews, regardless of the earn to me. I treat all my clients equally. You can never have perfect relationships with all your clients, but most of them regard as a friend as well as their adviser.

What I complain about is the time that today's red-tape puts upon me and makes it harder for me to do well what I have have been doing for over forty years. That red tape adds nothing to the client.

No surprises with any of the data. What is happening is exactly what long term risk advisers told the CEO's of the insurance companies would happen over the last 5 years or so .
To write new business it needs to be profitable. With the out of control monthly changing compliance BS and the increasing claw backs and reducing commissions, it just doesn't make a lot of sense to write new business. Just service your existing clients as best you can and try and stay sane.

The insurance industry is in very dangerous territory. I'm just not sure that any of the politicians and ASIC people making these decisions and changes give a shit though.

No Billy Bob, we earned out trail commissions in the past by making sure our clients were adequately covered to look after their most precious assets, their family and their major tangible asset,...the family home ....just in case or what if !

You can do no more than make sure in the event of a claim, those things are addressed.
In most cases the renewal commission (trail) was no more than 10.0% p.a of the annual premium.
To spend 20 hours plus from start to finish to organise a claim payment is normal, not the exception, because no client would ever be in a position to pay you for your time otherwise
That's the intangible service, renewal commission has always covered and I hope one day you get the opportunity to figure that out

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